Regulatory Developments

Prominent Republicans Push for Carbon Tax

Well-known conservative members of the Climate Leadership Council have issued a short paper urging Congress and the White House to develop a tax on industry carbon emissions.

The Conservative Case for Carbon Dividends says that a gradually increasing carbon tax would send a powerful market signal that encourages technological innovation and large-scale substitution of existing energy and transportation infrastructures, thereby stimulating new investment. Second, such a plan would offer companies, especially those in the energy sector, the predictability they now lack, thus removing one of the most serious impediments to longer-term capital investment. Third, because many regulations would become unnecessary, the plan would give companies the flexibility to reduce emissions in the most efficient way.

Authors of the report include James A. Baker, who served as secretary of State under President George H.W. Bush, secretary of the Treasury under President Reagan, and White House chief of staff under both; Henry M. Paulson Jr., who served as secretary of the Treasury under President George W. Bush; Martin Feldstein, who served as chairman of the President’s Council of Economic Advisers from 1982 to 1984 under President Reagan; and George P. Shultz, who served as secretary of State under President Reagan and secretary of the Treasury under President Nixon.

Climate Risks Should Be Hedged

“Mounting evidence of climate change is growing too strong to ignore,” state the authors. “While the extent to which climate change is due to man-made causes can be questioned, the risks associated with future warming are too big and should be hedged. At least we need an insurance policy. For too long, many Republicans have looked the other way, forfeiting the policy initiative to those who favor growth-inhibiting command-and-control regulations, and fostering a needless climate divide between the GOP and the scientific, business, military, religious, civic and international mainstream. Now that the Republican Party controls the White House and Congress, it has the opportunity and responsibility to promote a climate plan that showcases the full power of enduring conservative convictions.”

The Plan’s Four Pillars

The paper describes four “pillars of a carbon dividends plan” as follows:

A gradually increasing carbon tax. Economists are nearly unanimous in their belief that a carbon tax is the most efficient and effective way to reduce carbon emissions. A sensible carbon tax might begin at $40 a ton and increase steadily over time, sending a powerful signal to businesses and consumers while generating revenue to reward Americans for decreasing their collective carbon footprint.

Carbon dividends for all Americans. All the proceeds from this carbon tax would be returned to the American people on an equal and quarterly basis via dividend checks, direct deposits, or contributions to their individual retirement accounts. Under the $40/ton scenario, a family of four would receive approximately $2,000 in carbon dividend payments in the first year. This amount would grow over time as the carbon tax rate increases, creating a positive feedback loop—the more the climate is protected, the greater the individual dividend payments to all Americans.

Border carbon adjustments. Border adjustments for the carbon content of both imports and exports would protect American competitiveness and punish free riding by other nations, encouraging them to adopt carbon pricing of their own. Exports to countries without comparable carbon pricing systems would receive rebates for carbon taxes paid, while imports from such countries would face fees on the carbon content of their products.

Significant regulatory rollbacks. The final pillar is the elimination of regulations that are no longer necessary upon the enactment of a rising carbon tax whose longevity is secured by the popularity of dividends. Much of EPA’s regulatory authority over carbon dioxide emissions would be phased out, including an outright repeal of the Clean Power Plan. Robust carbon taxes would also make possible an end to federal and state tort liability for emitters. To build and sustain a bipartisan consensus for a regulatory rollback of this magnitude, the initial carbon tax rate should be set to exceed the emissions reductions of current regulations.

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